Unfortunately, it sold fast after a large price drop and someone else got it.

But then they walked away and the home is available again.

Turns out, the water heater won’t light and the HVAC won’t turn on.  There’s a couple minor leaks under a sink and the roof needs a bit of patching.  For a buyer with conventional financing, that’s really not a problem.

For my FHA buyer, it is the kiss of death.

Given that the property is bank owned, there’s no one to complete those repairs.  And all of those repairs would be required, most likely, for a buyer using FHA financing to purchase a home.  With the $8000 tax credit, there’s a lot of first time buyers out there, using FHA financing.  It’s a beautiful program for people buying their first home.  And in a market that is a third distressed properties, there’s a large segment of the homes for sale that those buyers can’t buy. 

Frustrating, to say the least.

There’s 47 days between now and when you have to have an an accepted contract with the Seller.  Let’s give it at least a week of negotiations, and you’ve got 40 days to identify the right house and make an offer. 

By the way – there are 2798 homes for sale under $300k as of today in the greater Tucson area.  405 are bank owned, and 571 of them are short sales.  Let’s face it – if you want the tax credit, you’re probably not considering purchasing a short sale.  That leaves you 2227 to pick from.  If you want something move in ready, take those bank owned homes out of the equation too.  Bank owned homes and short sales are 35% of the market – one in 3 homes listed is already out of the running.  If you’re hoping to find that perfect home at the last minute, you’ll be disappointed in your selection.

Starting early April 2010:

• the upfront mortgage insurance premium will increase from 1.75% to 2.25% of the loan amount.
• seller contributions to buyer costs cannot exceed 3% of the purchase price, down from 6%.
• borrowers will need a FICO score of 580 or better to qualify for the 3.5% down payment.

FHA financing is incredibly popular with first time home buyers here in Tucson, though you don’t need to be a first time home buyer to get an FHA loan.  A lot of first timers have good jobs, decent credit, but don’t have the cash savings for larger down payment amounts.  Starting soon, those FHA home buyers are going to pay a bit more for the homes that they purchase.  I don’t think these changes are going to bump a whole lot of people out of the market – at least that’s my opinion given the first time home buyers I typically work with in Tucson.

The Mortgage Report Man Dan explains it in greater detail here (who can now lend in Arizona, by the way).

Not so fast there.  There’s a big difference between paying full price and paying full value for a home.  There’s absolutely nothing wrong with paying full price – or more – for a house if the value is supported.

Consider the list price to be a general relative indicator of value – we’ll assume when we first see a home that the list price is somewhere in the ballpark of true value.  Sometimes the list price is too high and sometimes it is too low.  Not every seller is overpricing their home.  Some are serious, ready to sell, and price their homes very well.

Be more concerned with value, and not hung up on price.  To find value, we’ll look at what other homes are selling for in the area, make adjustments for condition and location and amenities, make adjustments for the effects of the market in general over time. 

If we think a home’s value is greater than the price, well, you just might need to offer something over the list price in order to get it.  And you’ll very likely find yourself in competition for that home.

Think it doesn’t happen?  Fourth quarter of 2009, in Central Tucson – of the 267 sales, 127 were at or above list price.  That’s means 48% of the sales were AT or OVER the list price.

If you find yourself a great deal, priced under value, then move on that – and quickly.

The investor put in new carpet, painted it, cleaned up the yard, installed new appliances, and put it back on the market within about 2 weeks, for only $5k more than it was listed last time.

So now, it’s a great house, in really good condition with some nice fresh upgrades at a really good price.

Except my clients can’t buy it.

Like many first time buyers, they’re using FHA financing to purchase their first home.  FHA financing lets them come in with a smaller down payment, and the credit score requirements are a bit more lenient than conventional financing.  It’s fabulous financing for first-timers who have steady jobs and a little bit of savings, looking to get into that first home.

But FHA says that the owner of the property has to have held it 90 days before any Buyer with FHA financing can buy it.  In fact, the offer itself must be dated on the 91st day or later.  Which takes this house completely out of the running because it sold on the first day it was listed, and I’m pretty sure they got more than the list price for it.

Of course, not every ‘flip’ is a great deal for home buyers, and certainly many are not well renovated, but it’s frustrating to watch a good one go by and not be able to compete.

As a buying strategy though, there are more effective methods.  Trying to find the perfect home by driving around and visiting open houses is like firing randomly into the woods and hoping to hit a chicken. Or other woodland creature. 

Odds are not in your favor. 

Especially when we can search the Tucson MLS and know there are exactly 45 homes that meet your criteria and can go visit all of them together, on our own time, at our leisure, without anyone chasing us around the home.

They’re fabulous for getting to know a neighborhood though, to see examples of homes in the region.

The home buyer tax credit is only for first time buyers, according to the IRS.  And those are people who have not owned a home in the last 3 years.  Excluded from the credit are first time home buyers who file taxes separately and whose income exceeds $95,000, those who file jointly and whose income exceeds $170,000.

There are a few other guidelines – mortgage guru Dan covers them well in this article.

BUT – you have to close on your home on or before December 1, 2009.

Given a typical escrow is 30-45 days in Tucson – let’s use 45 days just to play safe – if we count backwards, that means you need to have a home under contract by October 16th.  Throw in a couple of days for negotiating, and you need to be making offers probably by October 10th, at the absolute latest.

Which is in 46 days. 

If you think you may qualify for this program and want to take advantage of it, it’s time to get moving.  Get thee to a lender to get pre-approved, and get thee home shopping.

If you’ve got questions, send me an email.  Happy to help where I can.

I know, it’s just a little thing.  But I think it’s kinda nice.

photo via Flickr, courtesy of padsbrother

News on the mortgage front from people I trust – Fannie Mae’s new fee structure is about to work its way through the system, and some have predicted your rate and closing costs will be higher starting today. 

Remember, it’s for Fannie Mae backed loans only – no FHA or VA, jumbo, or niche/portfolio loans.

So what’s this increased costs all about?  Dan Green of The Mortgage Reports explains further here.

In a nutshell, Fannie Mae introduced risk-based pricing and it is about to come into effect.  If they think you’re a bigger risk, you have to pay more to get the loan.  More or less.  So if you’re looking at a lender’s published rates, they may or may not apply to you because the lender now has to assess your risk level and adjust pricing for Fannie Mae loans. 

Might be a good time to call your lender and check those rates and fees if you’re looking to buy a home and have a pre-approval in hand.

There are many HOAs that are trying to raise fees right now.  Those in foreclosure or otherwise tight budgets often let the HOA dues slide first.  When you buy a home with a homeowner’s association, you’re usually supposed to receive copies of the most recent financial report and reserve studies and copies of the operating budget.  Typically, you’ll get these on a disk in the mail, and you really need to check those things out.  I don’t get copies, only you.  So make sure you’re looking into the financial stability and dues history of homes in an HOA.